Friends,If I wanted a 50/50 (equity/bonds) allocation in a tax-deferred account by just using two LifeStrategy balanced funds, what would be the difference between using equal amounts of a 60/40 fund combined with a 40/60 fund versus equal amounts of an 80/20 fund combined with a 20/80 fund?Thanks,Gort

I think the answer to your question is the composition of the asset allocations. If you want to deep dive, put your fund choices into Morningstar's Instant X-Ray, but I think it will be easier to use one of the lazy / three-fund portfolio choices.

To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

Gort wrote:Friends,If I wanted a 50/50 (equity/bonds) allocation in a tax-deferred account by just using two LifeStrategy balanced funds, what would be the difference between using equal amounts of a 60/40 fund combined with a 40/60 fund versus equal amounts of an 80/20 fund combined with a 20/80 fund?Thanks,Gort

Gort,

LS Funds do NOT have TIPS.

If unexpected inflation is a concern for your personal circumstances, the easiest thing is a more aggressive LS Fund combined with TIPS fund.

I'd simply start with the Moderate 60/40 LS fund and add TIPS to the portfolio to bring it to 50/50. This way the additional fund (TIPS) will provide some additional functional diversification as well. LS + TIPS makes a fantastic diversified portfolio.

Sunny Sarkar wrote:I'd simply start with the Moderate 60/40 LS fund and add TIPS to the portfolio to bring it to 50/50. This way the additional fund (TIPS) will provide some additional functional diversification as well. LS + TIPS makes a fantastic diversified portfolio.

Sunny:

Excellent suggestion. Both funds should be in a tax-advantaged account.

I went from the traditional 4 fund 40% stocks/60% bonds portfolio, all Admiral Shares, to 67% lifeStrategy Moderate Growth and 33% Tips/Admiral shares, which retained my desired 40% stocks. I did this to get 67% of my portfolio automatically rebalanced because, why I didn't sell anything during the last crash, I didn't have the courage to rebalance when my target asset allocation changed significantly. The only downside to this change, is 67% of my portfolio is no longer in Admiral shares. But this 2 fund portfolio more than offset this additional cost, compared to the 4 portfolio, over the last 5 years.

An 85% LifeStrategy Moderate Growth fund (60/40) combined with 15% TIPS Fund results in the following portfolio:36% TSM15% Total International34% Total Bond15% TIPS.Nice. Super easy to rebalance. Well diversified. Low ER.Thanks for the great suggestion. You all are very helpful!!!

Gort wrote:An 85% LifeStrategy Moderate Growth fund (60/40) combined with 15% TIPS Fund results in the following portfolio:36% TSM15% Total International34% Total Bond15% TIPS.Nice. Super easy to rebalance. Well diversified. Low ER.Thanks for the great suggestion. You all are very helpful!!!

Gort wrote:An 85% LifeStrategy Moderate Growth fund (60/40) combined with 15% TIPS Fund results in the following portfolio:36% TSM15% Total International34% Total Bond15% TIPS.Nice. Super easy to rebalance. Well diversified. Low ER.Thanks for the great suggestion. You all are very helpful!!!

Total Bond Market in Life Strategy Growth ALREADY holds nearly 30% in Short Term Investment Grade Bonds. I doubt if 16% more S.T. bonds are worth the additional complexity of another overlapping bond fund.

Hi Taylor,I believe that the short bonds in TBM are primarily Treasuries. STIG would give more exposure to corporate as per Mr Bogles current thinking.Increased Short Term Allocation is also a better inflation hedge.

joe8d wrote:Hi Taylor,I believe that the short bonds in TBM are primarily Treasuries. STIG would give more exposure to corporate as per Mr Bogles current thinking.Increased Short Term Allocation is also a better inflation hedge.

Joe:

You are probably right. Why do you believe "the short bonds in TBM are primarily Treasuries?"

Gort wrote:An 85% LifeStrategy Moderate Growth fund (60/40) combined with 15% TIPS Fund results in the following portfolio:36% TSM15% Total International34% Total Bond15% TIPS.Nice. Super easy to rebalance. Well diversified. Low ER.Thanks for the great suggestion. You all are very helpful!!!

No comments? I think I found my perfect plan

Gort, I think that's a very nice plan, and I'm thinking of doing something somewhat similar myself when I roll my 401k over. Enjoy.

I would actually contend there's little difference between a 60/40 and 50/50 allocation so I'd just go with the 60/40 fund. If you're going to use more than one fund anyway, why not just go ahead and use the three individual funds so you can take advantage of the lower expenses that come with admiral shares?

Putting 25% each in the total stock market, total international stock market, total bond, and TIPS bond fund is no more difficult than using 2 different Lifestrategy funds and your costs will be lower.

I think one of my motivations is to have some exposure to TIPS which are not in the LS offering. You can use a Target fund but that puts you on the glide path which over time alters the AA from your original choice.

Googling AA I ran across a Taylor post that has an excellent link to a Vanguard overview of various AA and there performance. Vanguard Model Portfolio Allocations